The Lion’s Roar II

Part I of this article from the Wall Street Journal explained that the three decades after World War II saw a phenomenal economic growth that was the direct product of two world wars and an intervening horrendous economic collapse. It has been labeled the Golden Age. 

The article continues:

By MARC LEVINSON, Oct. 16, 2016

The Golden Age was the first sustained period of economic growth in most countries since the 1920s. But it was built on far more than just pent-up demand and the stimulus of the postwar baby boom. Unprecedented productivity growth around the world made the Golden Age possible. In the 25 years that ended in 1973, the amount produced in an hour of work roughly doubled in the U.S. and Canada, tripled in Europe and quintupled in Japan.

Many factors played a role in this achievement. The workforce everywhere became vastly more educated. As millions of laborers shifted from tending sheep and hoeing potatoes to working in factories and construction sites, they could create far more economic value. New motorways boosted productivity in the transportation sector by letting truck drivers cover longer distances with larger vehicles. Faster ground transportation made it practical, in turn, for farms and factories to expand to sell not just locally but regionally or nationally, abandoning craft methods in favor of machinery that could produce more goods at lower cost. Six rounds of tariff reductions brought a massive increase in cross-border trade, putting even stronger competitive pressure on manufacturers to become more efficient.

Above all, technological innovation helped to create new products and offered better ways for workers to do their jobs. To take but one example: In the late 1940s, telephones were still rare and costly in Europe and Japan, but by the early 1970s, they were ubiquitous.

imgres-4 images-21Economic performances that at first seemed miraculous were soon seen as normal. The boom went on year after year. Australia, Austria, Denmark, Finland, Germany, Italy, Japan, Norway, Sweden—all enjoyed a quarter-century with only the briefest of economic doldrums.Unemployment, for all practical purposes, was nonexistent. Economic volatility seemed to have been consigned to the dustbin of history. And with experts such as Walter Heller, the head of the Council of Economic Advisers under Presidents Kennedy and Johnson, and Karl Schiller, the West German economy minister from 1966 to 1972, telling the public that wise government management had made recession a thing of the past there was every reason to expect the good times to continue. . .

images-20        Gas lines in 1973

The 1973 oil crisis meant more than just gasoline lines and lowered thermostats. It shocked the world economy. Politicians everywhere responded by putting energy high on their agendas. In the U.S., the crusade for “energy independence” led to energy efficiency standards, the creation of the Strategic Petroleum Reserve, large government investments in solar power and nuclear fusion, and price deregulation. But it wasn’t the price of gasoline that brought the long run of global prosperity to an end. It just diverted attention from a more fundamental problem: Productivity growth had slowed sharply.

The consequences of the productivity bust were severe. Full employment vanished. It would be 24 years before the U.S. unemployment rate would again reach the low levels of late 1973, and the infinitesimal unemployment rates in France, Germany and Japan would never be reached again. Through the rest of the 20th century, the jobless rate in 28 wealthy economies would average nearly 7%.

According to the late British economist Angus Maddison, the world’s overall economic growth rate dropped from 4.9% a year from 1951 through 1973 to an average of just 3.1% for the balance of the century. Economic growth slowed even more swiftly in the wealthy economies. Incomes merely crept ahead, and families’ sense of stability vanished as weak economic growth undermined the financial underpinnings of the welfare state.

End of Part II – To be concluded in a subsequent blog.

Mr. Levinson is a former finance and economics editor of the Economist. This essay is adapted from his new book, “An Extraordinary Time: The End of the Postwar Boom and the Return of the Ordinary Economy,” which will be published on Nov. 8 by Basic Books.

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